Market Waiting for The Fed to Swing, Where is JCI Going?

Jakarta, CNBC Indonesia – The financial market in Indonesia this week tends to vary. The Composite Stock Price Index (IHSG) was observed to be languishing, but the rupiah actually succeeded against the United States (US) dollar.

Launch data Refinitiv, within a week, the Composite Stock Price Index (IHSG) was recorded as having fallen 1.29% and closed at the level of 6,678.24. This is the worst weekly performance since the first week of 2023 or in the last three months.

Market data shows that foreign investors have recorded net selling actions of up to Rp 2.72 trillion in the regular market this week.

Meanwhile, the rupiah was encouraging, where the rupiah strengthened 0.68% in a week at Rp. 15,340/US$ on the spot market. Positive performance this week while ending a 5-week losing streak.

During the five trading days, the rupiah appreciated three times, while the rest weakened.

The sinking JCI and the encouraging rupiah were related to the collapse of Silicon Valley Bank (SVB) which started last Friday and affected several banks in the United States (US) and even affected a bank in Switzerland.

The market is worried that the crisis phenomenon that occurred in 2008-2009 will be repeated this year. This is because the SVB crisis affected several banks in just a day, or even hours.

The SVB crisis affected other US banks such as Signature Bank, Silvergate Bank, and most recently, First Republic Bank. In fact, not only in the US, one of the banks in Switzerland, namely Credit Suisse, was also affected.

Previously, Signature Bank was taken over by the US financial authorities last Sunday, after massive withdrawals of funds from customers reaching US$ 10 billion.

Banks that have many customers in the sector real estate The company has assets worth US$ 110 billion and savings of US$ 88.59 billion by the end of 2022. As a result, the financial sector in the US was the sector that was the reddest last Tuesday US time.

Not to mention that the decline in Credit Suisse’s share price has made market players even more nervous. Some of the released economic data still seems unable to save the JCI from falling this week.

The Central Statistics Agency (BPS) on Wednesday (15/3) at around 11.00 WIB, noted that Indonesia’s trade balance continued to experience a surplus in February 2023. The surplus was recorded at US$5.48 billion. This surplus was due to higher exports of US$ 21.40 billion, while imports were only US$ 15.92 billion.

The surplus was recorded higher than the previous month which was only US$ 3.87 billion.

This surplus figure is above the market consensus compiled CNBC Indonesia from 12 institutions. The economist consensus predicts a trade balance surplus in February 2023 of US$ 3.2 billion.

This February surplus at the same time established a record surplus for 34 consecutive months since May 2021.

In addition, the JCI received fresh air from the release of Bank Indonesia (BI) interest rates. BI maintains this benchmark interest rate in line with a neutral monetary policy aimed at achieving an inflation target of 2%-4% by September this year while supporting economic growth.

Even though annual inflation increased to 5.47% in February, BI still maintains its view of economic growth in the range of 4.5%-5.3% for this year.

In contrast to the JCI, the fate of the rupiah is even better, because the attitude of the US central bank (Federal Reserve/The Fed) will soften after the banking crisis this week.

Based on the FedWatch tool owned by the CME Group, market participants see a 62% probability that the Fed will raise interest rates by 25 basis points next week. Meanwhile, the remaining 38% probability sees the Fed not raising interest rates.

Those expectations reversed quickly after the collapse of the SVB, before markets believed the Fed would raise interest rates by 50 basis points last week.

The rupiah was also helped by BI’s decision to maintain its benchmark interest rate at 5.75%.

In addition, the possibility for Indonesian banks to experience something like SVB is also very small.

Governor of Bank Indonesia (BI) Perry Warjiyo said that from the results of a stress test conducted by the Financial System Stability Committee (KSSK) the US bank crisis caused by the bankruptcy of three banks had no impact on Indonesian banks.

“Since last year we did stress testat BI every month our task stress test to ensure everything is ok,” Perry said during a press conference as quoted Friday, (17/3/2023).

However, Perry emphasized that BI remains vigilant regarding perceptions of the development of shocks in the banking sector. One of them is by managing the perceptions of financial and economic market players through the stability of the rupiah exchange rate against the US dollar.